"Did banks get big because they wanted to or were they following their clients, their customers and the markets? Was it for an economic purpose?"

Finding a way of preventing a re-run of the 2007 financial crisis is a key theme of this year's Davos forum and has been given added impetus by last week's White House announcement that the US would put restrictions on the size and the activities of Wall Street banks.

Diamond said there had been the failure of a "couple of banks" caused by poor regulation and ineffective management, particularly around management of risk.

"I have seen no evidence that suggests shrinking banks and making them smaller and more narrow is the issue."

He said it was up to the G20 group of developed and developing nations to establish "an effective regulatory framework to have better managed, integrated, universal banks". Isolated actions by individual governments were not "beneficial" and international co-operation was vital if banks with global operations were to be regulated effectively.

A new era of "narrow" banks would be harmful, Diamond said. "The impact on jobs, global trade and the global economy would be very negative."

A telling little exchange at today's bad-tempered Congressional hearing into the government's bail-out of AIG, as the former treasury secretary Henry Paulson gave evidence to deeply sceptical lawmakers